How Blockchain Might Change Payments for Small Businesses

Blockchain, a decentralized ledger, is known as a revolutionary technology with the potential to disrupt entire industries. A number of large corporations have incorporated blockchain technology in their business processes because of the transparency, immutability and secure record of transactions. The central banks of some of the world’s largest countries are currently exploring blockchain technology for numerous potentially influential applications like national digital currencies and global payment solutions.

A research paper titled ‘Distributed Ledger Technology in Payments, Clearing and Settlement’ was published by U.S. Federal Reserve in December, 2016. The research paper observed the use of blockchain for payment solutions and financial trading. The research also cited the potential of blockchain to improve cross-border payment solutions, highlighted issues like scalability, privacy, security and some legal concerns associated with the blockchain payments. The Fed noticed that blockchain technology is at an early stage, with many industry leaders and experts suggesting that large-scale adoption could still take years.

A practical example of implementation of blockchain technology has been seen in October 2017 when the financial giant MasterCard announced to open up to blockchain-based solution for consumers, businesses and banks. MasterCard will initially implement this cutting-edge technology in the business-to-business (B2B) space. The company believes that this will help deal with the challenges involving speed, transparency and costs associated with cross-border payments.

While some large corporations are exploring the blockchain technology, small businesses cannot afford not to consider this fast-evolving technological landscape for the numerous benefits that it has to offer. Here are some of the perceived benefits of blockchain technology for small businesses:

Faster Payments:

Blockchain technology does not involve any meddling third parties or middlemen. Typically, bank-based payments take 1-3 days to process. Bitcoin payments, on the other hand, are processed within minutes to a few hours, depending on the network’s cryptographic load. The distributed network of ledgers works closely to track, record, verify, and enforce transactions on the blockchain. This results into fast transaction speed and decreased transaction costs.

Cost-Effective Solution:

Blockchain payments are secure and smooth with minimal transaction fees, making it a cost-effective solution for small businesses. Banks and payment processors alternatively charge 2-4 percent additional fees for using their services while as a general rule, blockchain transactions rarely go above 1 percent. The secure blockchain technology circumvents the need for the intermediaries (banks and payment processors) and disorderly verification processes. This whole process of fast and secure payments makes it useful for small businesses in accepting payments, paying vendors or subcontractors, or transferring wages to employees.

Easier Cross-Border Payments:

International payments infrastructures are disorganized and high-priced due to multiple intermediaries and different currencies contributing in the transaction processes. International payments often take days or weeks to complete. Low transfer costs and operational efficiency of cryptocurrencies make it an ideal way for cross-border payments. Investment in distributed ledger technology for small businesses can not only make cross-border payments faster and more transparent but cheaper for the involved parties.

No Disagreements/Disputes:

Blockchain transactions are completely digital but the process works more like cash rather than credit cards. Once the transaction is approved by both parties it can’t be contested. Additionally, authorization and verification of transactions is required which reduces any disagreements or disputes between businesses.

We’ve found some practical examples of companies using and offering blockchain payment solutions. IBM officially announced a major initiative in banking with IBM’s new universal blockchain payment solution on Oct 16th, 2017. The computing giant has partnered up with blockchain startup Stellar and payment company Kickex to launch a cross-border payment system for banks that use the blockchain to “reduce the settlement time and lower the cost of completing global payments for businesses and consumers.”

When it comes to blockchain for small businesses, it is necessary to be open-minded and try the great opportunities that it offers. It is difficult to predict whether blockchain will work for small businesses in the same ways it works for huge corporations today. Businesses of any scope should take a realistic approach to leveraging any new technology. Blockchain's potential is yet to be fully tapped, and we will no doubt discover more applications and solutions for business and personal use in the near future.